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The Message From Gold And Treasuries: "This Time Is Different"

Tyler Durden's picture




 

The last forty years have seen five distinct regimes in the relationship between gold prices and Treasury yields. It would appear that the current regime (from 2006 to Present) is 'different' indeed as the Keynesian end-point seems to have arrived.

The 5 'Correlation' Regimes of Gold and Treasury Yields...

Regime 1 - 1971-to-1980 - highly correlated with rising Treasury yields and rising Gold prices

Regime 2 - 1980-to-1986 - completely anti-correlated: very dynamic, as rates rose so Gold fell and as rates fell so Gold rose

Regime 3 - 1986-to-2002 - highly correlated with falling Treasury yields and falling gold prices

Regime 4 - 2002-to-2006 - highly correlated with rising Treasury yields and rising Gold prices

Regime 5 - 2006-to-Present - completely anti-correlated with falling Treasury yields (to record lows) and rising Gold prices (to record highs)...

 

Charts: Bloomberg

 

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Wed, 07/11/2012 - 12:05 | 2606318 JamesBond
JamesBond's picture

when you see crosses like the regime 5, duck and cover

 

jb

Wed, 07/11/2012 - 12:06 | 2606320 Careless Whisper
Careless Whisper's picture

The Careless Whisper News Update & Threadjacking

 

San Francisco Bans Apple Computers; Not Green Enough

http://www.dailymail.co.uk/sciencetech/article-2171902/San-Francisco-bans-city-workers-buying-Apple-computers-tech-giant-pulls-green-certification-scheme.html

QUOTE OF THE DAY: "We're clean, but we're dirty-clean, rather than clean-clean." (Barclay's Bank representative)

http://dealbook.nytimes.com/2012/07/10/handicapping-if-criminal-charges-will-arise-from-the-libor-scandal/

Real Proposal: Turn Detroit Into Zombie Theme Park (VIDEO)

http://www.youtube.com/watch?v=lySQ4TjsEVc

Los Invito: Soy Mitt Romney Y Apruebo Este Mensaje (VIDEO)

http://www.youtube.com/watch?v=cP7NwCfr5kA

Trending: Cali Cities Declaring Bankruptcy; 3rd This Month

http://www.youtube.com/watch?v=cP7NwCfr5kA

 

 

 

 

 

Wed, 07/11/2012 - 12:13 | 2606354 Pinto Currency
Pinto Currency's picture

 

Printing money and buying your own bonds works until it doesn't.

Wed, 07/11/2012 - 12:16 | 2606369 nope-1004
nope-1004's picture

Agree.  The word "ponzi" doesn't do it justice.  More like FRAUD than a ponzi.

 

Wed, 07/11/2012 - 12:53 | 2606520 Vagabond
Vagabond's picture

We could be undergoing hyperinflation and Krugman would still say we need to print more and get more government spending.

Wed, 07/11/2012 - 13:36 | 2606710 derek_vineyard
derek_vineyard's picture

japan circa 1989 to present w/ twist  (domestic deterioration, eat external inflation)

Wed, 07/11/2012 - 12:17 | 2606373 MillionDollarBoner_
MillionDollarBoner_'s picture

Same goes for printing money and buying short Gold ETFs ;o)

Wed, 07/11/2012 - 12:20 | 2606388 vast-dom
vast-dom's picture

The Austrian School in action. Printing and distorting interest rates (yields) will ALWAYS end in DISASTER! Distort credit and savings and you are biding time in your distortions for that which you are avoiding in the first place, multiplied by many factors. 

Wed, 07/11/2012 - 14:17 | 2606900 ATM
ATM's picture

Or in other words, you bring upon yourself that which you most fear.

Wed, 07/11/2012 - 12:13 | 2606358 DoChenRollingBearing
DoChenRollingBearing's picture

So much correlation and then negative correlation hints to me that gold and Treasury yields are not correlated at all, at least over a longer term.

There NEVER seems to be a correlation that we can make money off...

Wed, 07/11/2012 - 12:48 | 2606504 LowProfile
LowProfile's picture

DCRB, you need to think about it in a broader context of confidence, manipulation, and confidence in the success of the TPTB's future manipulation.  Cheers, LP

Wed, 07/11/2012 - 12:04 | 2606319 Thomas
Thomas's picture

Counting on return of correlation when treasury yields start rising.

Wed, 07/11/2012 - 12:07 | 2606328 NotApplicable
NotApplicable's picture

Can't happen. Dependence on ZIRP will ensure the system self-destructs first.

Which will be the day everyone suddenly refuses to accept dollars as payments for goods and services.

Wed, 07/11/2012 - 12:18 | 2606379 MillionDollarBoner_
MillionDollarBoner_'s picture

which is the day you better be holding physical

Wed, 07/11/2012 - 12:40 | 2606480 sosoome
sosoome's picture

Well, self-destruction likely to be triggered by higher interest rates. Panic out of $ into gold. Correlation resumes.

But I think there will be an overnight re-set before we get there.

Either good for gold.

Wed, 07/11/2012 - 12:10 | 2606339 midgetrannyporn
midgetrannyporn's picture

when the price of gold breaks down correlation will return.

http://www.youtube.com/watch?v=KJBTOC3Mfpk

Wed, 07/11/2012 - 12:18 | 2606377 nope-1004
nope-1004's picture

... because the economy is so robust and growth imminent?  LOL.

More like treasuries will spike once the IRS derivative complex is exposed as a shell game.

 

Wed, 07/11/2012 - 12:24 | 2606423 Bay of Pigs
Bay of Pigs's picture

Have you noticed the anti gold crowd is increasing again here at ZH?

Reminds me of 2008 when gold fell from over $1000 to $690. Same old worn out arguments too.

Wed, 07/11/2012 - 12:36 | 2606465 akak
akak's picture

All we need to complete the PM-bashing crowd here is a zombie gold-hating JohnnyBravo/MasterBates returning from the grave and the reincarnation of MethMan with his incessant anti-silver bleating "only $5 to dig from the ground!".

Wed, 07/11/2012 - 12:36 | 2606466 seek
seek's picture

Either trolls or sockpuppets. ZH is becoming pretty high profile (I now routinely see it linked to in other news aggregators, some of them close to mainstream) and has a penchant for pointing out the emperor has no clothes. Given those two, I'm sure ZH is attracting both commerical and government "truth squads" with sock puppet accounts. I really hope Tyler has someone looking for this in the logs, is just to know the size of the problem.

I also think it'd be awesome to out them someday. This happens on a regular basis on reddit, notably with military and the US lobby arm of a particular country.

 

Wed, 07/11/2012 - 12:44 | 2606489 midgetrannyporn
midgetrannyporn's picture

the gold and silver bugs are never wrong because they whine like bitchez when the price goes down.

http://jessescrossroadscafe.blogspot.com/2012/07/gold-daily-and-silver-w...

Wed, 07/11/2012 - 12:53 | 2606526 Mr_Wonderful
Mr_Wonderful's picture

Yeah, yeah the death of the dollar and the crash of the bond market have been just around the corner for as long as I remember. Now, the price of govt. debt is at a 200-year high and the dollar´s demise remains elusive. Same old.

Wed, 07/11/2012 - 17:19 | 2607793 rich_wicks
rich_wicks's picture

If you were holding a ton of dollars or bonds, what would you be doing?  Attempting to crash it?

China wants to accumulate resources with their surplus, they don't want to drive those resources up nor so they want to reduce their purchasing power.

The question to ask yourself, is that given that nobody is being prosecuted in our financial sector (Jon Corzine, Franklin Raines, Angelo Mozillo, Dick Fuld, Bob Diamond, etc), shouldn't it be obvious to you it's nothing but a smash and grab free for all?  Fiat systems require trust.

Wed, 07/11/2012 - 13:01 | 2606555 Bay of Pigs
Bay of Pigs's picture

Funny you would post that particular link and site. Whining? Hardly. Jesse is very rational in his commentary and chart work.

And you? Try a five or ten year chart Einstein.

Wed, 07/11/2012 - 13:15 | 2606610 midgetrannyporn
midgetrannyporn's picture

I know, gold only goes up just like houses. LMAO!

Wed, 07/11/2012 - 13:20 | 2606632 Bay of Pigs
Bay of Pigs's picture

So you're a top caller then? Is THAT your point?

Okay, got it mental midgetrannyporn.

Wed, 07/11/2012 - 18:22 | 2608057 rich_wicks
rich_wicks's picture

The only thing that goes up consistently, is US debt.

It grows at 9.4% a year.

Meanwhile, US tax revenue as a percentage of the national debt has gone from about 50% in 1980 to where it stands now - 16%, and it's declining.

Duh, I wonder what the end result will be?  I know, a strong dollar!

Wed, 07/11/2012 - 14:26 | 2606949 PiratePawpaw
PiratePawpaw's picture

When my gold and silver drops below 3x what I paid for it, then I'll worry. Right now I'm quite happy.

 

 

When I do decide to sell; do you think I should put it into Greek Bonds, Spanish Bonds or FRN's?

Wed, 07/11/2012 - 14:15 | 2606881 DebtSlaveZombie
DebtSlaveZombie's picture

Good point.  And in 2008, when gold should have been a "safe haven" asset, it wasnt.  The dollar was.  You are making the point that all people arguing against gold in the short term are making.  Gold is a commodity.  When fear and panic strike, people will seek safety in what they know.  The dollar.  The reserve currency.  The only true liquid currency on the planet when times get bad.  Cash, not gold eagles, will be sought.  Now, long term, yes, gold will be the place to be.  But 2008 is only a preview of whats to come.  That was the "red flag" that we are over the event horizon and tumbling into the world wide currency collapse abyss.  But, it will take years for this to play out.  Not at Jackson Hole in August, or when Greece leaves the Eurozone, or when China growth collapses.  It will be a slow motion train wreck, and gold will touch 800 - 1000 range again before going higher.  When banks/cities/countries start defaulting on debts, creditors will seek what assets they can obtain in exchange for that debt.  Commodities will be on that list and prices will have to be adjusted to take into account firesale transactions.  Gold/Silver/Copper volitility will be huge.  So, yes, gold will go higher over the next 5 years, but in the next 12 months, who knows... I wouldnt be surprised if it was $1000 by Christmas and I wouldnt be surprised if it was $2000 either.  But one thing is for sure.  No asset class is safe.  The dollar, in the near term, is.  Capital preservation at this point.  Everything else is too much risk.

Wed, 07/11/2012 - 18:11 | 2608009 Bay of Pigs
Bay of Pigs's picture

you really dont know much about gold, do you?

Wed, 07/11/2012 - 18:12 | 2608012 BurningFuld
BurningFuld's picture

Are you retarded?  I bought Gold Bullion in 2008 at 768.00 an ounce and 823.00 an ounce. I have doubled my money currently. I'm sure everyone else here has doubled their money playing the market since then...or by holding USD since then right? Right?

Wed, 07/11/2012 - 22:21 | 2608692 Tegrat
Tegrat's picture

Actually, one of our accounts had been flat for the 10 years in the market. I switched to 100% TIPS in 2010 and that account has tripled.

 

Thu, 07/26/2012 - 17:24 | 2654710 MeelionDollerBogus
MeelionDollerBogus's picture

How does 2008 revoke safe-haven status for gold? It kept getting bought and it kept going up in price. A higher 2007 price does not break safe-haven status.

Thu, 07/26/2012 - 17:26 | 2654716 MeelionDollerBogus
MeelionDollerBogus's picture

"over the next 12 months, who knows"

I know.

http://flic.kr/p/cgMBw3

http://chart.ly/k5ouhgv

Clear as day.

Wed, 07/11/2012 - 12:19 | 2606381 Mr_Wonderful
Mr_Wonderful's picture

They can´t rise or the entire system will collapse under the weight of insurance contracts that insure its survival. The bond market has been saying this for the last 25 years and is very unlikely to change its stance any time soon. The system is very stretched at this point, the FED is leveraged 60-1 against its capital and so on. So, everything will continue to be about very low interest rates.

Wed, 07/11/2012 - 12:06 | 2606321 CrazyCooter
CrazyCooter's picture

Hmmm, so if the dollar tanks (FedReserve), does the coinage (Treasury) still hold up or do they go with the fiat?

Regards,

Cooter

Wed, 07/11/2012 - 12:07 | 2606326 Lost Wages
Lost Wages's picture

Is another generation of yuppie scum about to die?

Wed, 07/11/2012 - 12:08 | 2606330 Mr_Wonderful
Mr_Wonderful's picture

Notice the exact trading channel in treasurys since ca. 1985. I think the 10 yr. yield will eventually be bid down to almost zero.

Wed, 07/11/2012 - 12:14 | 2606360 SheepDog-One
SheepDog-One's picture

And probably quite soon.

Wed, 07/11/2012 - 12:25 | 2606425 Mr_Wonderful
Mr_Wonderful's picture

Well, the price of govt. debt is slightly below a recent 200-year high. There is certainly some blood left in that cow. Give it maybe three years or so. The 10 yr. should eventually stall at .25 to .50%. Or who knows, maybe it´ll go negative. It has certainly been a very consistent and strong bull market.

Wed, 07/11/2012 - 12:10 | 2606335 orangegeek
orangegeek's picture

Gold shows bearish in the context of elliott wave.  Gold bugs index appears to be leading gold too.

 

http://bullandbearmash.com/index/gold/daily/

Wed, 07/11/2012 - 12:21 | 2606396 Bay of Pigs
Bay of Pigs's picture

I guess you missed the charts above?

Or are you just trolling?

Wed, 07/11/2012 - 12:48 | 2606505 akak
akak's picture

Most likely, yes and yes.

Wed, 07/11/2012 - 12:12 | 2606346 Dr. Engali
Dr. Engali's picture

I certainly don't like the looks of chart number one. It sure makes gold look like a top.

Wed, 07/11/2012 - 12:17 | 2606378 SheepDog-One
SheepDog-One's picture

Sure as far as 'priced in dollars'.

Wed, 07/11/2012 - 12:24 | 2606419 Bam_Man
Bam_Man's picture

An intermediate top, more than likely.

New highs - at many multiples of the 2011 top - will be reached when (not if) loss of faith in paper/electronic  money & markets occurs. Give it another year or two.

Wed, 07/11/2012 - 12:12 | 2606350 SILVERGEDDON
SILVERGEDDON's picture


Paper sucks, you Wall Street fucks! I'll see you vampires in the sun, with my loaded silver gun. Yer goin' down in flames, from Lower Manhattan to the Thames. Your paper is I know not where, I'd rather shit my underwear! For, be there bull, or be there bear, silver is the suit I wear! (With gratitude, and apologies to Dr. Seuss.)

 


The only paper I own is the stuff I wipe my ass with. Market paper is worthless, because I cannot do a good job of wiping my ass with it. Gold was worth $28.00 an ounce when I was a kid. Silver was worth whatever was printed on the coin you spent. Any one think those days are coming back? All of the lying bum fucking aristocracy of the Age Of Paper Power can burn in their paper suits soonest. I won't even bother pissing on them to put out the flames.
I collect gold, silver, lead, copper, real dry powder, food, tools, diesel fuel, and other useful commodities. There is a community of folks all doing the same, so skill sets and extra eyes and hands can guard each others sixes, and "break on through to the other side, break on through to the other side, YEAH
"
HFT ain't good for me. 

Credit defaults far as the eye can see.

CDS's gonna make some messes.
Boo hoo hoo as thieves confesses.

TBTF gonna fall off a cliff - REAL NEAT.

Wall Street is a bunch of fucking dead meat.

 

Banks used to be so overleveraged bold. Now, they're layin' bankrupt,dead and cold.

Gonna be nothing but prepper people, all the rest gonna be surprised fucked up Sheeple.

God bless this mess.

I must confess. I'm a fucking poet,

 

and didn't even know it.

 

RISK ON, RISK OFF. DROP YOUR COCKS, AND GRAB YOUR SOCKS, BECAUSE THIS DISNEYLAND RIDE IS JUST BEGINNING !!!!!!!!! 

Wed, 07/11/2012 - 12:15 | 2606363 RagnarDanneskjold
RagnarDanneskjold's picture

So back to regime 2? When yield's rise it will be part of the mother of all U.S. dollar rallies, the last bull market for the pre-New U.S. dollar.

Wed, 07/11/2012 - 12:20 | 2606391 Diet Coke and F...
Diet Coke and Floozies's picture

Anyone think this is the mother of all wedges?

 

http://wbt.host56.com/Wedge.jpg

Wed, 07/11/2012 - 12:26 | 2606430 Bam_Man
Bam_Man's picture

I got the mother of all wedgies at summer camp in 1979.

Wed, 07/11/2012 - 12:26 | 2606432 Diet Coke and F...
Diet Coke and Floozies's picture

Shitty. lol

Wed, 07/11/2012 - 12:36 | 2606463 AssFire
AssFire's picture

The atomic wedgie was when the elastic waist bands were stretched over the shoulders...

such would be bullying today in this PC bullshit society.

Wed, 07/11/2012 - 12:36 | 2606467 Diet Coke and F...
Diet Coke and Floozies's picture

Sorry, the term is 'Triangle'... I had a rough night... Love a good summer cold. :P

Wed, 07/11/2012 - 12:47 | 2606500 EvryInternational
EvryInternational's picture

It's a descending right triangle - and it's present with gold, too. Very bearish, though through other analysis on gold we expect a bottom in August, the Fib ratios from from the 2009 lows show that we could be could be at the point of a turn and we are very close to channel support coming from the 2009 low. Bottom line: we need to hold the lows around 1526 in gold through August. If we do that, we should begin to run upward again. If not, the next level of support is way below this...

Wed, 07/11/2012 - 13:12 | 2606592 Diet Coke and F...
Diet Coke and Floozies's picture

Agreed.

Wed, 07/11/2012 - 15:20 | 2607250 MillionDollarBoner_
MillionDollarBoner_'s picture

You honestly still rely on technical analysis for your guiding star?

Have you not noticed - we live in Interesting times and this time it is definitely, 100%, fully insured, NHBC backed, different!

This is the death of money...geddit?!?

Wed, 07/11/2012 - 12:22 | 2606401 Gunga
Gunga's picture

IMHO, I think real yield (bond yield- real inflation %) is a better predictor of future gold prices than the bonds trend or % pay looked at in isolation.
When the real yield is negative, precious metals preserve wealth. If you can find a safe investment that yields greater than true inflation after taxes that instrument would be a good option.

Wed, 07/11/2012 - 12:24 | 2606416 wally_12
wally_12's picture

We need a Mahalanobis Taguchi System(MTS) correlation analysis.

Not enough varibles to determine a correlation!

Paper=Bad, Gold=Good

Wed, 07/11/2012 - 14:25 | 2606944 kalasend
kalasend's picture

I don't know what the fuck you're talking about but that must mean good. I trust math.

Wed, 07/11/2012 - 12:27 | 2606434 Stuart
Stuart's picture

in Regime 5, rates should be rising but they not due to manipulation of rates by the Fed.  They can do this indefinitely for they have unlimited firepower.  

Wed, 07/11/2012 - 12:30 | 2606449 Prof. Auguste Balls
Prof. Auguste Balls's picture

This analysis misses the point.  The relationship is with real yields not nominal ones.  Interest rates can be rising while real rates are falling - it depends what is happening to underlying inflation.

Balls

Wed, 07/11/2012 - 12:37 | 2606469 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

This Centrally Planned Market

Wed, 07/11/2012 - 12:52 | 2606506 Everybodys All ...
Everybodys All American's picture

Fraud ... plain and simple.

Wed, 07/11/2012 - 12:48 | 2606507 JackT
JackT's picture

Tyler-- What is that exact date in 2010 when they crossed?

Wed, 07/11/2012 - 12:57 | 2606541 Everybodys All ...
Everybodys All American's picture

looks to me as though the Jackson Hole meeting when the Bernanke announced the first QE is when this truly started to diverge.

Wed, 07/11/2012 - 13:03 | 2606561 JackT
JackT's picture

It does. Would be interesting to know the exact date.

Wed, 07/11/2012 - 13:14 | 2606608 onebir
onebir's picture

It'll depend on the scales, which are different and somewhat arbitrary...

Wed, 07/11/2012 - 12:52 | 2606523 Solon the Destroyer
Solon the Destroyer's picture

This graph shows why the Quantity Theory of Money does not explain all it purports to.

Yields and Gold Price were heavily correlated in the 70s not because of "inflation", but because of a loss of faith in the US Government after they went off Bretton-Woods.

Volcker claimed high interest rates were necessary to remove "inflation" from the system, when in fact they were necessary due to a loss of faith in the greenback and the USA's ability to make both their current account payments and their debt payments (as well as cut the deficit).  High interest rates were necessary because the greenback had been devalued against gold, and to encourage foreigners to continue buying and holding US debt.

That devaluation and the loss of faith in the internaiotnal payments system led to Gold correlating directionally with interest rates.

Wed, 07/11/2012 - 15:23 | 2607264 MillionDollarBoner_
MillionDollarBoner_'s picture

So we have what to look forward to? Roaring inflation, high interest rates and repressed PMs?

Looking forward to that - not!

Wed, 07/11/2012 - 12:56 | 2606536 katchum
katchum's picture

Normally deflation means yields go down and gold goes down. Inflation means gold goes up and yields go up.

This time is different. The Fed has been expanding its balance sheet to buy up bonds, that's why yields are going down and the dollar is being debased, so gold goes up against the dollar. It will continue to do so. Meaning yields will stay low and gold will skyrocket due to money printing to buy bonds.

Wed, 07/11/2012 - 12:58 | 2606540 monopoly
monopoly's picture

There is no doubt for me where this all ends. Gold is my comfort. But, I will admit these miners look like a brewing bear market, at least for now. GG just killed on somewhat mild lower guidance and most have broken uptrend lines. So, as much as I hate confetti, the dollar is close to a major breakout. And that may not be good for our miners, short term. Remember, it is the one eyed blind man leading the blind. But for now. The trend is Their friend. As long as Europe continues to implode, and their is no end in sight as one country after another blows up....Treasuries and the dollar are where they want to be. +Physical, but not enough to move us out of a trading range.

Patience, cash, and no margin will win this marathon.

Wed, 07/11/2012 - 13:20 | 2606628 onebir
onebir's picture

I think what this shows is the market

- has figured out more QE is getting less and less effective & is a political liability pre-election but

- hasn't figured out Bernanke (et al) can (& I think will shortly) cut interest on excess reserves (IOER) & or announce nominal GDP targetting (due to the dual mandate).

I don't think ECB/BoE can officially do this, but they could announce money supply growth targets consistent with their inflation targets or preannounce (IOER) cuts.

Wed, 07/11/2012 - 13:45 | 2606746 Stuck on Zero
Stuck on Zero's picture

The graph just demonstrates the decoupling of the dollar and the price of gold.  The price of gold and other commodities is determined by demand from the rest of the world.

 

Wed, 07/11/2012 - 13:59 | 2606798 lasvegaspersona
lasvegaspersona's picture

I think they are reading the wrong tea leaves or the tea leaves wrong.

Some fundamental differences are not addressed such as oil support for the USD after 80. All things being equal this would be an OK analysis...but all things are not.

Wed, 07/11/2012 - 14:28 | 2606968 Bicycle Repairman
Bicycle Repairman's picture

Given the changes in correlation, I'll posit that a variable or two are missing from the analysis. What are they? Buy my report for a mere 100 oz of AU and I'll tell you.

Wed, 07/11/2012 - 15:21 | 2607257 bankruptcylawyer
bankruptcylawyer's picture

Beware the midas douche'

Fri, 07/13/2012 - 17:35 | 2614567 BetweenThe Coasts
BetweenThe Coasts's picture

The story goes the world is in flight into safe US Treasuries, pushing yields down and US Capital Account up. When the flight money looses confidence and decides to exit US dollars Treasury rates will start to rise again. Armstrong speculates that will be August 2013. Willie maintains the low rates are because of US Treasuries Interest rate swaps via JP Morgan, but the supression has not too much longer to live. A new $, government debt repudiation or both are the result.

 

Your mileage may vary.

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